Dow Falls 22.42 on Bank Slide; Tokyo Recovers : Market Overview

Highlights of Wednesday’s market activity, compiled from Times staff and wire reports:

* Weighed down by a plunge in bank shares, stocks tumbled in a late-afternoon selloff. The Dow Jones industrial average lost 22.42 points to 3,307.06.

* The Tokyo market stabilized after the government announced new measures to help ailing banks try to stem a stock selloff. But many traders remained skeptical that the 2 1/2-year decline in stocks has ended.

* Treasury bond yields eased slightly, while gold gained.

Stocks

Until the late afternoon the market was quiet and directionless ahead of President Bush’s speech today before the Republican National Convention in Houston. Shares then dropped sharply, ending near the day’s lows.

Bank stocks, which were heavily traded, helped drag down the market, said Hugh Johnson, senior vice president at First Albany Corp. Selling in bank shares was accelerated by a rumor that the nation’s largest mutual fund firm, Fidelity Investments of Boston, was selling Citicorp and other bank stocks, traders said.

Fidelity spokeswoman Paula Slotkin denied the rumor.

John Heffern, bank analyst for Alex. Brown & Sons, compared the Fidelity rumor to a spark that starts a brush fire. He noted that bank stocks have rallied strongly this year, and thus are vulnerable to profit taking.

By the close, declining issues swamped winners 2 to 1 on the New York Stock Exchange. Volume rose to 186.71 million shares from Tuesday’s 169.90 million.

Analysts said more investors might have stepped in to buy stocks in the decline, except that so many people are sidelined awaiting Bush’s speech. There are high expectations about new proposals to reignite the weak economy.

Meanwhile, in Tokyo, buyers did reappear after the government’s announcement late Tuesday of steps to halt the market’s long decline. The Nikkei index jumped 341.33 points, or 2.4%, to 14,650.74.

The rally continued early today: The Nikkei was up 368.33 points, or 2.5%, to 15,019.07 at midday.

Steps announced by Finance Minister Tsutomu Hata included a temporary suspension of regulations setting minimum dividends for financial institutions, and a plan to allow banks to defer recording losses on their stock portfolios until next spring.

But many analysts were unimpressed. “We’re still in a downward trend,” said Bob Jackson, a trader at Jardine Fleming. “Hata did some spin-doctoring on some small measures to help the market. But I don’t think it’s enough.”

Corporate earnings remain the focus of the market. And judging from quarterly reports just released by Pioneer and Sony, earnings are coming in below reduced expectations. Pioneer’s April-June net profit fell 30%, and Sony’s dropped 36%.

Among U.S. market highlights:

* Major bank stocks that fell sharply included Citicorp, down 1 1/8 to 16 3/4; Chemical Bank, off 1 3/8 to 32 3/4; First Chicago, off 1 5/8 to 34 1/8; Chase Manhattan, down 1 1/2 to 22 5/8; NationsBank, which fell 1 1/8 to 45 7/8, and BankAmerica, down 1 1/4 to 43 1/4.

* Insurance stocks also suffered a big hit. Aetna Life slumped 2 3/4 to 40 3/8--a second straight drop--after the company said it will post a smaller than expected profit on the $1.4-billion sale of its American Re-Insurance subsidiary.

Other losers among insurers included General Re, down 2 5/8 to 85 5/8; Chubb, off 1 5/8 to 74 5/8, and AIG, which fell 1 to 95 3/8.

* Airline stocks also dropped, continuing a recent selloff. AMR, parent of American, sank 1 3/8 to 57 1/4, Delta dropped 1 1/8 to 50 1/8, and UAL, parent of United Airlines, lost 1 to 105 1/4. AMR said it expects to lose more in the current quarter than in the second quarter.

* Casino stocks did an about-face from their recent rally. Mirage Resorts slumped 2 to 23 7/8, Hilton sank 2 1/2 to 42 7/8, and Caesars World dropped 1 to 33. Rumors circulated about coming allegations of money laundering of Japanese organized-crime funds through Las Vegas casinos.

* Disney dropped 1 3/8 to 34 1/2. Shares of Euro-Disney sank 7.7% in Paris after a Morgan Stanley analyst advised selling that issue.

* California home builder Kaufman & Broad plummeted 2 1/2 to 11 3/4. The company said its California orders are up 130% from a year ago, to 1,017 units, this quarter. But it also said that weakness in its French subsidiary will mean current-quarter earnings 20% to 30% lower than a year ago.

* Sunbeam-Oster, the appliance maker, ended unchanged at 12 1/2 after an initial offering of 20 million shares at 12 1/2. Another new issue was Danskin, which went public at 13 and closed at 12 1/8.

* Among the few bright spots, Wrigley rocketed 4 3/8 to 90 7/8. The gum giant raised its dividend and declared a 3-for-1 stock split.

* Berlitz International, the language-instruction company, rose 2 to 23 1/2. Japan’s Fukutake Publishing said it will buy 67% of Berlitz.

In Europe, London’s Financial Times 100-share average added 8.8 points to 2,363.5. But in Frankfurt, the DAX average fell 8.50 points to 1,524.72, its lowest finish since Aug. 19, 1991.

Credit

Bond yields slipped slightly. The price of the Treasury’s 30-year bond rose 5/32 point, or $1.56 per $1,000. Its yield eased to 7.31% from 7.33% Tuesday.

Some traders dumped bonds in the morning after the government said the nation’s merchandise trade deficit narrowed 7.7% in June to $6.59 billion. Any good economic news is viewed suspiciously by the bond market these days, because it might lessen the chance of a further cut in interest rates.

For that reason, potential bond buyers have been reluctant to step up this week in advance of President Bush’s speech tonight. Bush is expected to unveil new economic initiatives.

But White House spokesman Marlin Fitzwater on Wednesday downplayed talk of sweeping tax cuts. “I’ve seen the speech, and that’s not in there,” he said. “He talks about new ideas for an economic recovery.”

The fed funds rate, the rate on overnight loans between banks, was 3.50%, up from 3% Tuesday.

Commodities

Orange juice futures plunged on the New York Cotton Exchange on reports that Brazil lowered the price that it will charge its U.S. and European customers.

The new price for Brazilian orange juice will match that being charged by Florida producers.

Frozen concentrated orange juice for November delivery settled 2.50 cents lower at $1.07 a pound.

Elsewhere, September light, crude oil fell 10 cents to $21.37 a barrel on the New York Merc.

Gold gained on New York’s Comex on increased buying by Middle East interests. August gold rose $2.20 to $337.90 an ounce. September silver was unchanged at $3.78.

Currency

The dollar closed mostly lower in listless trading, with little news to affect the market.

“The dollar is on the brink of new lows, historic lows,” warned John Nelson, a trader at Algemene Bank Nederland.

In New York, it closed at 126.58 Japanese yen, up from 126.15 Tuesday. However, it fell to 1.454 German marks from 1.457.